Whaat? There is something called a sentiment indicator that is used in the derivatives market? Have you heard about these types of indicators before? Confused? Well, let me tell you that it exists and helps you gauge the sentiments in the derivatives market. But if you do not know what this indicator does, then you are reading the right article to understand the same.
Sentiment indicators tell us how bullish or bearish market forces are and what they are thinking or feeling, which help us in forecasting the behaviour of traders in the stock market. When sentiment readings are extremely high or low, we should act in a contrarian way. For example, when investors are extremely bearish, we should take this as a contrary signal as it indicates that market prices could start reversing and may start heading higher soon.